Natural-gas ETF hits new low after inventory data

By John Spence

How low can it go? That’s the question for investors in U.S. Natural Gas Fund (UNG), which has lost more than half its value over the past year alone.

It was among the worst-performing ETFs on Thursday, losing 4% in afternoon trading following a report that natural-gas inventories fell less than expected last week. The ETF set a fresh all-time low of $8.28 during the session.

The fund’s collapse along with natural-gas prices since the summer of 2008 has been staggering. The ETF hit a high of $63.89 in July 2008, according to FactSet Research, so it has suffered an 87% loss from its peak so far.

Adding to its misery is a condition in futures markets known as contango when near-month futures contracts are more expensive than the spot price. Since the ETF rolls its contracts to maintain exposure to natural gas, it can lose money on this trade. Analysts have even pointed out periods where the ETF has lost value even though spot prices rose.

U.S. Natural Gas Fund, which has total assets of about $3.6 billion, was the worst-performing non-leveraged ETF in 2009. It also encountered regulatory issues when its popularity caused it to run out of shares. See previous ETF Investing column on UNG.